The following represents the targets accounting data you have estimated for the years 2018-2019. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2018 and the revenues, etc. are at the end of 2018, 2019). In addition, you have the following information for the target and the acquiring firm.

A. Calculate the appropriate cash flows.

B. Calculate the appropriate discount rate for the acquiring firm based on the value of the target.

C. Calculate the target firm value. What would be a reasonable offer (i.e. $/share) for the target.

	2018	2019
Revenues	$9,000,000	$13,000,000
Cost of Goods Sold	$4,500,000	$8,000,000
Depreciation	$1,000,000	$1,200,000
A&G	$1,200,000	$900,000
Interest	$750,000	$800,000
Retained Earnings	$600,000	$800,000

Target	Acquiring Firm
L = 1.8	Cap Structure: Debt = 50%
Taxes = 30%	Taxes = 34%
Cap Structure: Debt = 30%
# of Shares Outstanding = 800,000	Other Information
Current Price per Share = $18	T-bond rate = 6%
Est. Future Growth Rate = 8%	Mkt Risk Premium = 5%